PUBLIC LAW 105-34—AUG. 5, 1997 111 STAT. 837 "(1) IN GENERAL.—In the case of a sale or exchange to which this subsection applies, the ownership and use requirements of subsection (a) shall not apply and subsection (b)(3) shall not apply; but the amount of gain excluded from gross income under subsection (a) with respect to such sale or exchange shall not exceed— "(A) the amount which bears the same ratio to the amount which would be so excluded under this section if such requirements had been met, as "(B) the shorter of— "(i) the aggregate periods, during the 5-year period ending on the date of such sale or exchange, such property has been owned and used by the taxpayer as the taxpayer's principal residence, or "(ii) the period after the date of the most recent prior sale or exchange by the taxpayer to which subsection (a) applied and before the date of such sale or exchange, bears to 2 years. " (2) SALES AND EXCHANGES TO WHICH SUBSECTION APPLIES.— This subsection shall apply to any sale or exchange if— "(A) subsection (a) would not (but for this subsection) apply to such sale or exchange by reason of— "(i) a failure to meet the ownership and use requirements of subsection (a), or "(ii) subsection (b)(3), and "(B) such sale or exchange is by reason of a change in place of employment, health, or, to the extent provided in regulations, unforeseen circumstances. " (d) SPECIAL RULES.— "(1) JOINT RETURNS.—I f a husband and wife make a joint return for the taxable year of the sale or exchange of the property, subsections (a) and (c) shall apply if either spouse meets the ownership and use requirements of subsection (a) with respect to such property. "(2) PROPERTY OF DECEASED SPOUSE. —For purposes of this section, in the case of an unmarried individual whose spouse is deceased on the date of the sale or exchange of property, the period such unmarried individual owned and used such property shall include the period such deceased spouse owned and used such property before death. " (3) PROPERTY OWNED BY SPOUSE OR FORMER SPOUSE. — For purposes of this section— " (A) PROPERTY TRANSFERRED TO INDIVIDUAL FROM SPOUSE OR FORMER SPOUSE.—In the case of an individual holding property transferred to such individual in a transaction described in section 1041(a), the period such individual owns such property shall include the period the transferor owned the property. " (B) PROPERTY USED BY FORMER SPOUSE PURSUANT TO DIVORCE DECREE, ETC. —Solely for purposes of this section, an individual shall be treated as using property as such individual's principal residence during any period of ownership while such individual's spouse or former spouse is granted use of the property under a divorce or separation instrument (as defined in section 71(b)(2)).
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